The yen fell against the dollar,
erasing its earlier advance to a four-month high, after the Bank
of Japan pumped record funds into an economy reeling from the
nation’s strongest earthquake.

The yen declined versus 13 of its 16 major counterparts as
the central bank said it will add 15 trillion yen ($183 billion)
to the financial system and increase its asset-purchase program.
The euro rose for a second day after European leaders agreed to
widen the scope of a rescue fund aimed at resolving the
sovereign-debt crisis and cut the cost of loans to Greece.

“The BOJ is providing ample liquidity,” said Koji Fukaya,
chief currency strategist at Credit Suisse Group AG in Tokyo.
“The disaster may slow down the entire economy in Japan, and
the bank will have to keep its monetary policy easing. That’s
definitely yen-negative.”

The yen fell to 82.12 per dollar as of 6:40 a.m. in London
from 81.84 in New York last week after earlier touching 80.62,
the strongest since Nov. 9. It declined 0.6 percent to 114.45
per euro. Europe’s common currency climbed 0.3 percent to
$1.3938 from last week in New York.

The emergency measure represents the Japanese central
bank’s first same-day repurchase operations since May when it
added funds to help stabilize markets amid Greece’s debt crisis.

‘Massive’ Liquidity

BOJ Governor Masaaki Shirakawa and his board also doubled
the facility that buys assets from government bonds to exchange-
traded funds to 10 trillion yen. Besides the 15 trillion yen of
emergency funds deployed, the central bank offered to buy 3
trillion yen of government bonds from lenders in repurchase
agreements starting March 16.

The BOJ kept its benchmark interest rate at a range of zero
to 0.1 percent. Borrowing costs were already cut near zero last
year as officials sought to revive growth and end deflation.
Finance Minister Yoshihiko Noda said earlier today that he’s
closely watching the foreign exchange, stock and Japanese bond
markets.

Japan’s currency advanced earlier as stocks slid and on
prospects domestic investors will buy back yen to pay for damage
caused by the disaster. The 8.9-magnitude temblor on March 11
and subsequent tsunami may have killed 10,000 in Miyagi
prefecture north of Tokyo, according to local police.

“We’re expecting dollar-yen to stay very heavy for the
next few weeks on the back of this tragedy,” said Gareth Berry,
a Singapore-based currency strategist at UBS AG. “When Japanese
investors turn risk-averse they will repatriate and buy yen with
the proceeds of their overseas investments.”

Europe’s common currency advanced after euro-area leaders
negotiated an accord to allow primary-market bond purchases that
will offer a lifeline to aid recipients in return for austerity
commitments. The agreement broke a deadlock as policy makers
sought to extinguish a crisis that has raged for more than a
year and forced Greece and Ireland to seek financial aid.

Leaders will allow the facility to spend its full 440
billion-euro ($613 billion) capacity, removing restrictions that
would have capped outlays at about 250 billion euros, though it
won’t be used to finance bond buybacks for debt-strapped states.
A final agreement is slated for a summit on March 24-25.

“The European accord is quite significant and a better
outcome than the market was expecting so that will be a positive
for the euro,” said Khoon Goh, head of market economics and
strategy at ANZ National Bank Ltd. in Wellington. “With the ECB
looking to hike rates in April the euro could be ripe to break
that key $1.40 level in the near-term.”

The European Central Bank’s governing council is scheduled
to meet on March 17.

Australian Dollar

Australia’s dollar dropped against 15 of its 16 major
counterparts as traders cut bets the Reserve Bank of Australia
will raise interest rates over the next year.

The RBA will boost its target rate by 17 basis points over
the next 12 months, down from a prediction for 36 basis-points
of increases a month ago, a Credit Suisse AG index showed.

“Markets are adjusting their rate-hike expectations
downward,” said John Kyriakopoulos, head of currency strategy
in Sydney at National Australia Bank Ltd., the nation’s largest
lender. “When you get risk aversion you tend to see some buying
of bonds as well. There is some negative perception to begin
with as to how Japan’s economic situation in the next few months
might affect Australia.”

Australia’s dollar depreciated to $1.0082 from $1.0138. The
currency dropped 0.2 percent to 82.80 yen, after earlier
declining to 81.47, the lowest since Jan. 31.